Formula
The net volatility for a two-legged spread (with one long leg, and one short) can be estimated, to a first order approximation, by the formula:
where
- is the net volatility for the spread
- and are the implied volatility and vega for the long leg
- and are the implied volatility and vega for the short leg
Read more about this topic: Net Volatility
Famous quotes containing the word formula:
“Every formula which expresses a law of nature is a hymn of praise to God.”
—Maria Mitchell (18181889)
“I feel like a white granular mass of amorphous crystalsmy formula appears to be isomeric with Spasmotoxin. My aurochloride precipitates into beautiful prismatic needles. My Platinochloride develops octohedron crystals,with a fine blue florescence. My physiological action is not indifferent. One millionth of a grain injected under the skin of a frog produced instantaneous death accompanied by an orange blossom odor.”
—Lafcadio Hearn (18501904)
“Its hard enough to adjust [to the lack of control] in the beginning, says a corporate vice president and single mother. But then you realize that everything keeps changing, so you never regain control. I was just learning to take care of the belly-button stump, when it fell off. I had just learned to make formula really efficiently, when Sarah stopped using it.”
—Anne C. Weisberg (20th century)